An individual places assets in trust to prevent them from going through probate after he dies. However, after the individual has died, a trustee must distribute the contents to the trust's named beneficiaries. The procedure trustees must use to distribute assets depends on the instructions described in the trust document.
A trust is a legal entity an individual creates to hold some of his assets until he dies. The creator of the trust must name beneficiaries to receive the assets after he dies, and he must name an individual to serve as the trustee of the trust. The trust creator often serves as trustee until he dies. In such cases, he must also name a successor trustee to manage the trust's affairs after the creator's death. Finally, the creator must transfer legal ownership of the assets to the trust.
Distributions of Principal
A trust document typically stipulates whether the trustee should distribute the trust's principal, which refers to the assets contained in the trust, or only the income these assets earn. If the document states that the trustee should distribute the principal, he transfers ownership of the principal assets to the beneficiaries designated in the trust. After he has transferred ownership of all of the trust's assets, the trust will have served its purpose.
Distributions of Income
If the trust document states that the trustee must distribute the income generated by the trust's assets, he must do so according to specific instructions included in the trust. Some trusts specify exactly how the trustee must distribute income, while others designate several beneficiaries and allow the trustee to control income distribution. In cases where the trustee distributes only the trust's income, the trust remains in existence until an event, such as the death of the last beneficiary, meets the trust's requirements for dissolution.
The trustee cannot distribute any assets or income from the trust until the survivorship period passes. The exact length of this period appears in the trust document, but it is usually 30 days. When a trust specifies that the trustee should distribute only income, it will also specify what the trustee should do with the trust's assets if the trust must dissolve.
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